Lesson learned: Once Christian started charging thousands of dollars on his cards each month for his online home repair business, his large credit utilization prevented him from getting a line of credit.
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He was right. Revenue for Handyman Connection has doubled every year. Christian is confident the company will reach $1.2 million in sales by the end of 2018, and he credits credit cards as having helped him build and maintain his business.
Is there anything you wish you had done differently?
I had great credit when I started the company. My score was over 750, so obtaining the credit cards I needed was not a problem. However, I made a mistake in not securing a business line of credit early, which allows small businesses to draw against a predetermined credit limit as necessary, so interest is paid only on the borrowed funds. This industry requires a lot of capital. We have to buy supplies and pay our craftsmen before we get paid by the clients.
I normally pay my credit cards in full each month, but it is not uncommon for me to have $40,000 in revolving credit card debt before I do. I didn’t realize how hard this would make it to get a business line of credit until it was too late. I wish I had gotten the line of credit first. I needed to pay down the credit cards in full and not charge a large balance again. That meant for about 30 days I had to slow down my company quite a bit to clear up my credit utilization on the cards. The good news is my credit score rebounded instantly, so it only took a month.
Which credit cards do you use for the business?
I have three primary credit cards. Our main company credit card is the Capital One Spark Cash for Business, because it gives us a high percentage in cash back on all purchases. I also use the Chase Sapphire Reserve for travel and meal expenses, as it offers all sorts of additional protections on travel. The Chase Freedom offers 5 percent cash back and the categories rotate each quarter. We use the heck out of this card for home repair stores in the quarter where it applies as well as other categories, like office supply stores. We spent over $140,000 at Home Depot alone last year, so those purchases add up to a lot of points and miles!
My primary employees have access to two cards as well. Each has their own spending limit, which is much lower than mine, but I can temporarily increase it at any time by logging into the website. I also use the Capital One app on my phone to watch balances and make payments as needed.
See related: 5 business expense card options for employers
How do you use credit cards to your advantage?
There are a few different ways. The first is that I pay my subcontractors via credit card, which lets me finance my labor cost for 30 days. It helps to keep my cash flow positive since my clients pay as soon as the work is completed.
However, not all my subcontractors accept credit cards, but it’s easy to show them how to set up an online account with PayPal or a similar service to accept cards. I do get some push back at first since they don’t like paying the fees, but they quickly come to see the benefits. Previously, I would not pay them until the client paid me, and that often caused a delay of up to two weeks. Now I can pay them on the spot. Another advantage is that they don’t have to come back to the office to get a check. Once the work is complete, we process the payment and they have it within 24 to 48 hours, depending on which service they use!
I also have credit lines from several of my suppliers who will then let me pay their bill with a credit card. For example, I have a $5,000 credit line with Sherwin Williams with 30-day terms. I buy my paint and wait until that bill is due. Then they automatically charge my card that’s on file. That gives me another month to pay the bill.
Of course, I also get the cash back and points as well, which is a nice bonus. I use the points for business travel. The Chase points are the best as I can transfer them to a single account, and then transfer them again to a specific airline or hotel. I normally get the best return converting these points to Southwest Airline miles.
See related: Chase Ultimate Rewards transfer partners
What borrowing lessons would you like to pass on to other entrepreneurs?
The old rule that is best: line up your access to loans before you need them. For years I had no debt, and I had companies begging me to get a line of credit or credit card from them. Once I started to charge tens of thousands each month, suddenly I could not get credit from anyone when I needed it for a large project. I should have gotten a line of credit before I even started the business.